Zero2IPO Reports That 10 PE Funds Raise US$12.02B in Q2, Falling from Q1; Central...

Zero2IPO Reports That 10 PE Funds Raise US$12.02B in Q2, Falling from Q1;
Central & Western Regions Experience Great Progress; PE Investment in Clean
Energy Sector Increases Substantially

BEIJING, July 22 /Xinhua-PRNewswire/ -- Zero2IPO Group announced today the
release of the "China Private Equity Q2 2008" report. The Zero2IPO Research
Center -- the research arm of Zero2IPO -- reported that during the second
quarter of 2008 China's Private Equity market fundraising level fell
considerably from that of the previous quarter.
According to the report, ten funds targeting Asia (including China) raised
US$12.02B over the past quarter. Total funds increased substantially in
comparison to the same period of last year. Overall, 37 Chinese enterprises
received US$2.56B in investment from over thirty PE organizations. The number
of exits continued to decline with only five exits occurring in Q2 (including
three IPO events backed by PE investment).
This document provides valuable data and expert conclusions based upon the
Q2 survey and the report above. It covers the participation of 75 PE funds
with active records investing in Mainland China.
Total Funds Raised Exhibits Year-on-Year Growth and Quarter-on-Quarter
Decline
PE funds raised capital during Q2 quite actively. According to the
Zero2IPO Research Center statistics, the 10 new funds collectively raised
US$12.02B. This figure is up 107.6% when compared to the same period of last
year and down by 39.9% in relation to Q1'08. The substantial number of PE
funds in China will fuel the development of China's elite enterprises in the
highly competitive business environment.
Figure 1: Total amount & number of newly raised funds, Q1'07 to Q2'08
(Please Click the Link in the bottom of the release)
Meanwhile, fund strategies substantially changed during this period.
Capital raised for real estate funds accounted for 8.1% of the total,
increasing a bit when compared to 2.5% for Q1'08. Growth capitals continued
to exhibit strong quarter on quarter growth. The Q2 figure increased to 57.8%
from 46.5% in the first quarter of 2008. PE organizations' change in strategy
structure has twofold implications. First, despite the influence from the
subprime mortgage crisis, PE funds are still optimistic about China's real
estate industry. Second, investors are paying more attention to industries
with investment opportunities that are fueled by the high growth of China's
overall economy.
Total Amount Invested Remains Stable; Other Hi-tech Industry Receives More
PE Investment
Overall, PE investment remained stable in the second quarter of 2008. PE
firms invested US$2.56B into 37 Chinese enterprises. The total amount was on
a par with that of Q1. However, it fell in comparison to the average amount
invested for the entirety of 2007 (US$3.20B).
Figure 2: Overall investment by quarter, Q1'07 to Q2'08
(Please Click the Link in the bottom of the release)
In terms of industry distribution, Traditional industry continued to
receive the most PE investment: it accounted for 63.3% of the total quarterly
PE investment (higher than the portion in Q1 and roughly equivalent to the
2007 figure). In Q1, the percentage of Traditional PE investment in the total
investment is 52.9%. The total share of Traditional enterprise financing for
2007 was 65.0%. This proves that Traditional industry still plays a leading
role in attracting PE investment.
Figure 3: Industrial distribution of PE investments by amount invested
(US$M)
(Please Click the Link in the bottom of the release)

Notably, the Other Hi-tech industry accounted for a larger portion of PE
investment during Q2 (21.4%) than that during Q1 (3.6%). This trend is partly
due to a rapid increase in the amount invested in the clean energy sector.
This also reflects the increasing importance of clean energy investment with
stricter environmental protection and exorbitantly high oil prices.
Central and Western Regions Stand Out; Investment in Traditional Three
Economic Growth Regions Tends to Be Evenly Distributed
Concerning regional distribution of PE investment, Jiangxi won the top
position with two deals receiving US$426.40M. Henan and Shanxi recorded two
deals, garnering US$54.37M and US$60.00M respectively. Hubei and Hunan
recorded one deal each, receiving US$349.96M and US$83.09M respectively.
Other central and western regions such as Inner Mongolia, Xinjiang, Sichuan,
and Guangxi also performed well.
Figure 4: Regional distribution of PE investments by amount invested
(US$M)
(Please Click the Link in the bottom of the release)
The most extensive regions of PE investment include the Yangtze River
Delta region, the Pearl River Delta region and the Bohai Rim Zone. For the
most part, during this quarter investment in these three regions was evenly
distributed. During Q2 Beijing only ranked No. 3 with US$394.88 million,
which is a sharp fall from last quarter's US$1.33 billion. Guangdong
(excluding Shenzhen) received 15.6% of total PE investment (this region only
received 1.0% of total PE investment during Q1). Shanghai also received more
investment this past quarter. The total amount of investment in Shanghai
increased to 5.1% this past quarter from 3.7% during the previous quarter.
Jiangsu and Zhejiang also received more investment. Overall, PE investment
distribution of the three economic regions tends to be balanced with a
shrinking gap between different regions.
Share of Growth Capitals Drops, While Shares of PIPE and Bridge Capital
Rise
From a strategic distribution stance on PE investment, growth capital
still occupied the overriding position albeit the proportion declined sharply.
During Q1'08, the aggregate amount totaled US$2.09B, accounting for 78.0% of
the quarterly total. During Q2'08, the total amount was US$1.27B,
representing 49.7% of the total. This quarter, the average of PE deals
adopting such a strategy decreased to US$49.00M from US$77.00M in Q1.
This quarter PE investment adopting bridge capital totaled US$567.00M,
accounting for 22.1% of the quarterly total (The comparable figures for Q1 are
US$147.00M and 5.5%). The total amount of PIPE reached US$548.00M,
representing 21.4% of the total. This amount increased from US$177.00M during
Q1 (6.6% of the total). The change in diversification strategy of PE
investments reflects the current poor performance of the capital market and
the heightened risk of investment exit.
Figure 5: PE strategy allocation by amount invested & deal number (US$M)
(Please Click the Link in the bottom of the release)

PE Exits Remain Stagnant; Exit Options Require Improvement
This quarter PE exits remained stagnant as the number of total exits
decreased to only five. The number decreased by 37.5% in comparison to Q1
statistics.
All five exit events in Q2'08 were in the form of IPO. Since the first
quarter of 2008, exit events lessened. The following three factors directly
lead to the continual stagnancy of PE exits: the continued worsening of
international capital markets, the sharp plummeting of the domestic stock
market and the new strict regulations published by the regulatory organs. We
estimate when the stock market begins to see signs of a rebound there will be
more exits especially in the forms of IPO and secondary offers. There were no
trade sales (stake transfer between financial investors) or M&A (financial
investors transferring stakes to strategic investors) within the survey scope
of Zero2IPO.
Given the overall exit performance during the past two quarters, we think
exit options need to be improved. We at Zero2IPO feel that this is still one
of the major issues facing the development of China's PE market.
Outlook for 2008: Excess of US$10B Funds Disbursed in Mainland China,
Central and Western regions Experience fast growth
Global capitalists are chasing PE markets in China and Asia due to its
favorable development. In Q2'08, the total amount of funds invested in China
grew to US$12.02B. This number is relatively less than that of Q1, but it
still maintained a high level of growth. The Zero2IPO Research Center has
executed a comprehensive analysis of historical data and we project that the
total fund size for China in 2008 will most likely exceed US$50.00B. If there
are no unforeseen major market fluctuations, there will be over US$10.00B of
funds injected into Chinese enterprises in 2008.
Traditional industry will take a vital position, but the PE allocation in
different industries will undoubtedly change substantially. Specifically, the
Real Estate industry may regain momentum after encountering a downturn amid
market instability and tight monetary policy. With the fast emerging 3G
applications and the integration of the three networks (telecommunication
network, computer network and CATV network), Broad IT will receive even more
funds. In Other Hi-tech sector, the wave of investment in China-based clean
tech enterprises will continue in 2008. This is thanks to the tremendous
demand for traditional energy alternatives on the global market.
PE investment across China, including the three traditional economic
growth regions, will be distributed evenly amongst all regions. According the
Zero2IPO Research Center's Q2 data, central and western regions of China
received more funds (We gave the similar outlook during Q1). We estimate that
PE investment distribution in the three traditional economic growth regions
will tend to be balanced during the second half of the year.
The 27 growth capital investments accounted for 73.0% of the quarterly
total in Q2. Growth capital remained the overriding strategy form. With the
launch of the GEM board and the rebound of the stock market, IPO and PIPE will
continue to experience continued growth.
For more information please click:
http://www.zero2ipo.com.hk/china_this_week/detail.asp?id=7033

About Zero2IPO Research Center
Founded in November 2001, the Zero2IPO Research Center provides a full
range of business research reports and customized research solutions for
investment professionals in the Greater China Region. Our research ranges
from Venture Capital, Private Equity, IPO, M&A to TMT industries. The
Zero2IPO Research Center sets itself apart from competitors as the most
prestigious research institute in China's VC and PE spheres.
Note about Citation
For any quotations, please note it is quoted from "China Venture Capital
Report Q2 2008" and send two copies of your newspaper to:
Aileen Huang
Suite 1203, Tower A, Eagle Plaza, No. 26,
Xiaoyun Road, Chaoyang District, Beijing, 100125, China
Tel: +86-10-8458-0476 x8037

Or email the website link of your article to aileenhuang@zero2ipo.com.cn.

SOURCE Zero2IPO

Ms. Robin Zhu, +86-10-8458-0476 x8073, or robinzhu@zero2ipo.com.cn / /Web:
http://www.zero2ipo.com.hk/china_this_week/detail.asp?id=6980